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I’m Earning Money, Now What?

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I got a call yesterday that made me smile.  A friend of mine explained that they are now earning more than they need to pay their bills, and they wanted my advice on what to tackle next.  I LOVE THOSE KINDS OF CONVERSATIONS!  It was fun.  It also gave me this post idea – if you are finally earning more than you need, what should you consider?

Happy Money
What can you do with lovely extra money?

Extra Money Options

If you are already covering your bills, have paid off your high interest debt like credit cards, and are ready to go to the next level, here are the things you could think about next!  Be excited – this is the fun part!

  1. Emergency Fund – I would suggest having enough cash on hand at any point to be able to pay at least 3 months of your expenses.  At the very least, keep enough on hand to pay for your out-of-pocket health insurance expenses.  That way, if you are in an accident, you will have enough to cover your part without scrambling.
  2. 401k – If your employer will match a certain percentage of contributions to your 401k, make sure to contribute at least that much.  It’s free money and pre-tax income! Take advantage of the benefit!  🙂
  3. IRA – If you don’t have a 401k, you could contribute pre-tax income to a regular IRA instead.
  4. Roth IRA – Once you have padding and have grabbed your free money, consider contributing post-tax income to a Roth IRA.  When you reach retirement age, you can take out taxable withdrawals from your 401k up to the limit of the lowest tax bracket, and then polish off the rest with non-taxable withdrawals from your Roth IRA.  It’s an excellent way to ensure that you stay within the lowest tax bracket in your golden years even if you live above the threshold.
  5. Life Insurance – You can usually get cheap life insurance through your employer.  It won’t move with you from job to job, but it’s generally a cheap way to get coverage.
  6. Short Term Disability Insurance – This can cover some percentage of your paycheck for the time right after you are disabled.  It’s great for temporary emergencies.  This is also generally cheaper through an employer.
  7. Long Term Disability Insurance – This can cover some percentage of your paycheck for longer terms if necessary.  This is OMG-this-sucks coverage.  This is also generally cheaper through an employer.
  8. Health Savings Account – This is another great way to put away pre-tax income to cover medical expenses.  Want to hear the great news?  HSA’s move with you from job to job!  You don’t just lose your contributions.  🙂
  9. Flexible Spending Account – This is also a tax-advantaged account for medical expenses, but the amounts contributed don’t roll over from year to year.  Be careful to only contribute what you know will use.
  10. Pay Off Debts Faster – If you still have low interest debt like student loans, car loans, and/or mortgages, you could use some of your extra income to pay them off faster.  🙂

What else would you suggest for someone dipping their feet into new-money waters?

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FYI:  I worked at a dead end cubicle job from 2005-2011 for about $30,000 per year.  I went self-employed in July 2011 and make between $70,000-$90,000 through blogging, professional pet sitting, hubby's reffing, and our rental home.  If you’d like to start your own site (link to my free step-by-step guide), I highly suggest checking out Bluehost (my referral link with a nice discount for you, PLUS a free custom header banner from me!).  Please contact me any time at budgetingfunstuff*at*gmail*dot*com with questions or just to brainstorm! I’d love to help!
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7 thoughts on “I’m Earning Money, Now What?

  1. Aside from the EF and retirement savings, I would suggested forecasting future expenses.
    Maybe it’s a car like Jane Savers says.
    Planning ahead for those big-ticket items a few years down the road can really be worth it.
    So few people buy their cars with cash. That would be awesome!

  2. My advice would be to enjoy some of it, while saving the rest. Your friends have either worked hard at growing their incomes or reducing their debts, that they should enjoy the fruits of their labor to some degree. I would advocate a little enjoyment mixed with Jane and Mike’s idea above.

  3. I think you have some great suggestions, but paying off debts would be my first instinct. After all, debt incurs interest which is eating into that extra money! After that, catching up on the emergency fund and then saving for retirement would be my next steps. Since I’ve done all of the above, I’m saving more for travel.

  4. I was also going to say “cash for your next car,” but everyone beat me to it. Not having to take out a loan is super-fine.
    If you have any medical issues (e.g., dental crowns that will soon need replacing), get that taken care of since you have the 50% co-pay in hand.
    I’d also suggest stocking up on things you use fairly often. Build a good deep pantry of your favorite foods and toiletries, buy a couple of years’ worth of shirts, socks and underwear (no joke), stash cleaning supplies and detergents.
    Should your personal economy tank temporarily, look at all the stuff you won’t have to buy.
    Start looking for the coming year’s holiday and birthday gifts, too. That’s only if you have folks for whom “evergreen” gifts work well (books, classic toys and the like).
    If you’ve wanted a bicycle or skis or something like that, start looking around.
    Having the money in hand means that you can take advantage of hot deals (including yard sales).

  5. All around great suggestions, I would also recommend along with an Emergency Fund that you start a pay by cash fund. For example we pay cash for our cars so we calculate how much we need to save each month in order to have enough for that car in 5 years.

  6. @jane, my friend is going to be putting a significant amount to paying off her new car loan faster.

    @Mortgage Free Mike, you two are both right. She could start saving for car repairs or some other big item down the road.

    @MikeS, don’t worry, she knows how to have fun (she’s my friend after all, LOL).

    @Daisy, I would have stressed debt more, but she’s already throwing a huge chunk of change at her only debt – a new car loan at 1.99% interest – so I down-played it. Forgot I was making this list for the masses, LOL.

    @Donna, too late for her and a car loan, but she’s aiming to pay it off in a year or less despite it only being at a 1.99% interest rate. Dental stuff is a great idea as well as stocking up for the future.

    @Marvin, good idea that I totally missed!

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